The new definition of Net success

For a lack of better metrics, reach, page views, and aggregate viewers have emerged as the basic measurements that advertisers and investors use as benchmarks for AOL, Yahoo, Infoseek, and others.

4 min read
For a lack of better metrics, reach, page views, and aggregate viewers have emerged as the basic measurements that advertisers and investors use as benchmarks for Web networks such as AOL, Yahoo, Infoseek, and others.

But while these metrics do have merit, in some cases it's difficult to translate them directly into the most tangible measure of success--revenue.

And in particular, reach does not equal success. Rather, the new formula for success should be: Reach plus Usage equals Success, and here's why.

It seems that these days, anyone with a broad array of non-overlapping Web sites can claim 50 percent reach, further diminishing this measure as a way to distinguish one site from another.

As a result, I believe that ultimately the long-term key measure for success will be usage, or the total time that a Web surfer spends on a given network. That's because advertisers may use this metric to better distinguish the best place to spend their dollars.

For example, two sites with very similar reach levels can have drastically different usage metrics.

Let's take a look at the disparity between AOL (AOL Web sites and proprietary service) and Yahoo. Both have fairly comparable reach--AOL claims 65.9 percent, while Yahoo has 51 percent, according to April research from Media Metrix.

But AOL has over 10 times the daily usage than Yahoo. Clearly, when one looks at any one of these statistics on a stand-alone basis, the data can be misleading. AOL has 827 million minutes of daily viewable advertising time, based on the number of its users and the time they spend at AOL sites. Meanwhile, Yahoo averages 67 million minutes.

  Avg. hours watched per day Viewers (millions) Minutes of ads watched in total
CBS* 1 26 390
  Avg. mins of usage a day Viewers (millions) Total
AOL** 55 17 795
AOL.com 0.8 40.3 32
Total AOL N/A N/A 827
Microsoft 2.2 32.4 71
Yahoo 2.2 31.2 69
eBay 4.2 7.2 30
Infoseek/Go Network 1 21.5 22
Excite 1.1 17.4 19
Lycos 0.6 28.9 17
* CBS numbers assume 15 minutes of advertising time/day.
** AOL numbers estimate 15 percent is non-AOL proprietary usage.
Source: Media Metrix (average TV hours based on 6 viewing hours/day)

And when comparing usage on Web networks in comparison to a more traditional measure, such as a broadcast network, the potential of Web companies to generate revenue is impressive.

For example, the average American watches about 6 hours of television a day. During that time, the viewer is exposed to about 90 minutes of commercials, representing 25 percent of their total viewing time. CBS has approximately 15 minutes per viewer to broadcast commercials and generate advertising revenue, while AOL has about 45 minutes of advertising exposure per viewer a day--three times that of CBS.

More importantly, AOL is still adding subscribers, and its usage numbers have increased, further expanding the Net giant's advertising revenue opportunities. This doesn't even take into account the ability of the Web to generate non-advertising based revenue, such as e-commerce, which only further enhances the attractiveness of these models.

When we switch to usage as our basis of comparison, another interesting trend emerges: the big are continuing to get bigger.

Despite reach gains that some of the smaller players have made vis-á-vis leaders such as AOL and Microsoft, the fact is these two Internet leaders continue to pull away from the pack in aggregate usage.

In looking at the historical data, AOL, Microsoft, and even the much-maligned Infoseek show significant growth in usage. Even with its substantially larger base, AOL has been able to grow its total minutes of advertising exposure 42 percent from December 1998 to April 1999. Microsoft has grown its usage time 45 percent to surpass Yahoo. Meanwhile, Infoseek and Disney's Go Network more than tripled total advertising exposure time from 5 million to 22 million minutes (after adding Disney's Web properties), pushing it into third place ahead of Excite and Lycos.

In summary, despite many of the Web portals offering impressive reach statistics, I believe the aggregate time spent on their services each month is the true measure of the company's ability to generate revenue. As previously mentioned, I believe this a more valuable metric than pure reach, since it shows the use of a service and not simply the "channel surfing" Web users and TV viewers tend to do.

I believe near-term success can come from driving traffic, or reach, to a firm's Web site, but long-term survival will be determined not only by the size of the audience, but also by how well and how long the Web site can retain the user's attention. Thus, the new formula for success should be Reach plus Usage equals Success.

PaineWebber maintains "buy" ratings on AOL and Infoseek, while Yahoo and Lycos are rated "neutral".